Selling wealth products to clients across multiple jurisdictions is becoming increasingly difficult for relationship managers who have to manually keep pace with ever-changing cross-border regulations.
Not only do managers expose themselves and their firms to potential financial penalties for non-compliance, there can also be onerous tax implications for clients depending on where they are domiciled. That creates an environment fraught with risk for relationship managers who don’t have sufficient compliance support in place.
In a recent webinar, we spoke to Indigita’s CEO Achille Deodato to discuss how wealth management firms can use digital tools to reduce cross-border compliance risk and ensure that products are tax efficient for clients.
Here are three key takeaways from the conversation…
There are three main risks that wealth managers face when dealing with cross-border transactions. The first and most obvious risk is fines for selling products in a country where it is not permitted to do so. UBS, for instance, was fined £3.9 billion in 2019 by a French court for a number of violations including a breach of cross-border rules. The second risk is the personal liability of the relationship manager, which can even lead to imprisonment. And the third is the potential implications for the board if a firm is fined for cross-border violations and can’t demonstrate that its risk management policy was fit for purpose.
In addition, remote working due to Covid-19 means relationship managers are less able to quickly check with compliance colleagues if they are allowed to do something. It is virtually impossible for managers to know all of the regulations they must comply with, which is where automation can help.
Traditionally if a relationship manager needed to verify whether it is possible to sell a particular product to a cross-border client, they would either need to check with their compliance team—who might not be able to respond immediately—or they would need to look it up in the relevant country manual. None of that is efficient if their client is on the phone and expects a rapid answer. By using a digital compliance app that can be accessed from anywhere, relationship managers can instead check whether or not a cross-border scenario is permitted in just a couple of clicks.
Take an example where a relationship manager has travelled to Italy to talk to Italian clients, and knows in advance what is and isn’t permitted. While there however, they unexpectedly bump into a client who is domiciled in France—what rules apply? In the past, the manager would either have to decline the meeting, call compliance, or risk breaching regulations. With digital app-based tools, they can find out what they can do in a matter of seconds, ensuring the firm doesn’t unnecessarily miss out on potential business.
Cross-border rules do not only cause regulatory headaches, they can also have serious tax consequences for clients. It is unrealistic for a relationship manager to know every tax implication for every product in every relevant jurisdiction. But by using a digital app like Indigita’s, managers can quickly check the tax implications for any product for any client in a clear and pragmatic way—rated either as suitable, neutral or toxic—allowing for rapid decision-making.
Such regulatory technology therefore can add value for clients while also reassuring wealth managers that every time they perform a cross-border transaction they are doing so in a compliant way, and can therefore demonstrate to regulators that they were following the applicable rules at that particular point in time.
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